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Religion and corporate tax compliance: evidence from Chinese Taoism and Buddhism

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Abstract

This paper examines the impact of religion (i.e. Buddhism and Taoism on the whole) on corporate tax compliance in China. Using a sample of 13,743 firm-year observations from the Chinese stock market for the period of 2008–2016, we find that firms headquartered in locations with stronger religious atmosphere are more likely to do better in tax compliance. Moreover, the tax compliance effect is moderated by pecuniary motivation and religious intensity, and varies with heterogeneity in formal institutions. The effect is weakened when the pecuniary motivation is strong, such as firms with more institutional ownership or less state ownership. The effect gets strengthened in firms with more female managers, while weakened in firms located in coastal regions which are more vulnerable to culture shocks. The effect is also more pronounced in regions with weaker formal institutions, such as worse legal environment or laxer tax enforcement. Our findings are robust to a battery of robustness checks, and shed light on the role of religion in disciplining corporate tax behaviors.

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Notes

  1. We use tax compliance to capture the extent of tax payment. A higher level of tax compliance indicates a lower level of tax avoidance or evasion.

  2. In 1983, the document titled “A report of the determination of key Buddhist and Taoist monasteries in Han regions by the state council’s bureau of religious affairs” was approved by the state council of the People’s Republic of China. According to the report, there are 148 temples related in total, and we name them as “famous temples” in the following text.

  3. The coastal cities include: Shenzhen, Zhuhai, Shantou, Xiamen, Haikou, Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou.

  4. Specifically, we use the residuals of regression following Eq. (3) as the proxy for local tax enforcement. Equation (3):

    $${T}_{it}/{Y}_{it}={\alpha }_{0}+{\alpha }_{1}{per\_GDP}_{it}+{\alpha }_{2}{IND1}_{it}+{\alpha }_{3}{IND2}_{it}+{\alpha }_{4}{Open}_{it}+{\varepsilon }_{it}, $$
    (3)

    where \({T}_{it}\) is the total tax revenues for province i in year t, and \({Y}_{it}\) stands for the local GDP. \({per\_GDP}_{it}\) is the logarithm of GDP per capita, and \({IND1}_{it}\) and \({IND2}_{it}\) denote the proportion of the first and second industry in GDP. \({Open}_{it}\) is the total volume of import and export divided by local GDP. \({\varepsilon }_{it}\) stands for random errors.

  5. The Chinese General Social Survey (CGSS) is a national, comprehensive and continuous academic survey project in China. The project uses random survey method to collect information at multiple levels, such as individual, family, community and so on.

  6. ETR2 = The corporate income tax expenses/ [pre-tax income- (deferred income tax/ statutory income tax rate)].

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Acknowledgements

Lu acknowledges to the support from the Youth Fund Project of Humanity and Social Sciences Research of Ministry of Education of China (No.18YJC790111). We also acknowledge the support from “A Project Funded by the Priority Academic Program Development of Jiangsu Higher Education Institutions (PAPD).

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  1. School of Accounting, Nanjing Audit University, Nanjing, China

    Jinghua Wang

  2. School of Public Finance and Taxation, Zhejiang University of Finance and Economics, Hangzhou, China

    Jiankun Lu

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  1. Jinghua Wang
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Wang, J., Lu, J. Religion and corporate tax compliance: evidence from Chinese Taoism and Buddhism. Eurasian Bus Rev 11, 327–347 (2021). https://doi.org/10.1007/s40821-020-00153-x

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